[Reprinted from the January 2016 issue of the LMR.]
The largest U.S. life insurer — with 2014 assets of more than $608 billion — announced this month its plans to separate its retail life insurance unit.
The decision was driven at least in part by the new regulatory environment. A CNBC story by Everett Rosenfeld quoted MetLife CEO Steven Kandarian explaining:
“Even though we are appealing our SIFI [Systemically Important Financial Institution—eds.] designation in court and do not believe any part of MetLife is systemic, this risk of increased capital requirements contributed to our decision to pursue the separation of the business…An independent company would benefit from greater focus, more flexibility in products and operations, and a reduced capital and compliance burden.”
This development fits in with the warnings that Carlos has been issuing from these pages. (See for example his articles, “Bank Deposits Are RISKY ” [May 2014], “From Bail-Outs to Bail-Ins” [February 2015], and “First Cyprus, Then Greece: Now It’s Time to Save Cash AT HOME” [ July 2015].)
We know that many of our subscribers work in the life insurance sector, and to that end we underscore that a de facto federal takeover could be in the wings via broad-based “contagion” regulation. For example, a December 2013 Pricewaterhouse-Coopers notice explained:
“The designation of AIG, Prudential, and GE Capital as systemically important nonbank financial institutions shows that federal oversight can be exercised without significantly changing the state insurance regulatory system.”
To be clear, the PwC notice was arguing that there would not be a major Congressional overhaul of life insurance regulation, since Dodd-Frank had already given the feds the power they needed…but that’s our point, too.